With Obamacare passed, the liberal media is mum this year regarding health insurance company profits.  In the years leading up to the passage of Obamacare, the top health insurance companies profits were front page news.  We have highlighted before that the health insurance company profit headlines about health insurance profits are often misguided.

For 2010, the top five insurance companies reported an average profit margin of 4.8%.  Insurance company profits ranged from 2.67% for Express Scripts to 6.33% for Cigna.  These hardly qualify as obscene profits, but the liberal media often uses profit of any amount as a dirty word.

The profit margins for the top 5 health insurance companies are (ordered by market cap):

• United Health Group: 4.92%
• Express Scripts: 2.67%
• Wellpoint: 4.92%
• Aetna: 5.16%
• Cigna: 6.33%

Part of the silence from the liberal media could be that the average profit margins for insurance companies down for 2010.  In 2010, the average health insurance company profit margin was 4.8% versus 5.15% for 2009 for the 5 largest insurance companies.  Hardly fodder for the anti-capitalism media.

Despite the lower health insurance company profits for this year, the five largest insurance companies paid over $6 billion in income taxes on just under $12 billion in net profits.

The annual reports of the insurance companies are just now being published, so it is inevitable that you will start seeing headlines over the next few weeks about the evil health insurance company profits.  However, the truth found in the financial statements of the health insurance companies is often much less sensational than the outrages that the media tries to portray.

The liberal-leaning, union-bankrolled Health Care For America Now study highlighted many of the “outrages” the health insurance companies are committing.  Outrages such as earning a profit, considering paying out dividends to shareholders, and raising premium costs.

Most, if not all, of the claims in the Health Care for America Now study are correct regarding the health insurance company profits.  However, the truth is often obscured by the shocking headlines and claims.

The top five health insurance companies reported an average profit margin of 5.2% for 2009.  Wellpoint had the highest profit margin racking up a 7.6% in profits.  Humana’s 3.4% profit was the lowest for the top 5 health insurance companies.

The top five health insurance companies did indeed see profit increases of over 55% for 2009.  However, the top 5 saw a 34% decrease in profits in 2008 in a particularly bad year.  The total profit increase from 2007 to 2009 was only 2.6%.  The insurance companies were able to bounce back from a bad year, which lead to huge profit increases for 2009, but hardly obscene or outrageous when compared to average years.  If a company or industry has a particularly bad year with a following good year, the profit increases can seem very high.

What about the claim that CIGNA had a 346% profit increase in 2009?  Well, it is entirely true.  However, in 2008, CIGNA had a 74% decrease in profits in a really bad year for the company.  The total profit increase from 2007 to 2009 was an outrageous 17%.

The media and several special interest groups are working to demonize several groups in order to sway public opinion.  Many groups dish out half truths in an attempt to induce outrage and hysterical emotional response from the public.  As “profit”, “CEO”, “shareholder” and “Rich” become dirty words, Americans need to educate themselves and seek the truth.

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Obscene Health Insurance Company Profits for 2010

One of the myths that the Obama Administration is pushing is that the government will be able to provide health care cheaper as they will be able to cut out all the insurance company profits.  In fact, he often refers to “those huge insurance company profits”.  The President is either trying to mislead people or is ignorant of how a business operates.

From conversations that I have had, I belive that many people are misinformed.  I have heard people talk about the evil insurance companies and their 1000% profit increases or the immoral insurance company 150% profit.  With comments similar to those being floated on TV, I am sure that people do not understand or know the truth.

For starters, many people don’t know what a profit is or how it is calculated.  A company’s profit equals its revenue minus expenses.  More simply, the cash it takes in minus all the bills it has to pay.  And as pointed out in a post over at HotAir.com, insurance companies only keep 4 to 5 cents for every dollar they take in which is 4 to 5% profit and not anywhere near 150%.

The simple example of a grocery store can help explain.  When you spend $100 dollars at the grocery store, that $100 dollars is the revenue that the store receives.  However, that $100 is not profit.  Assuming the grocery store has a 50% markup on the products you bought, they had to pay $50 dollars for the goods that you bought.  That leaves them $50 dollars in profits right?  Wrong.  They still have to pay the employees, pay the utilities, advertising, rent, and other expenses.  Then, what ever is left over after paying those expenses is taxed.  What is left over is  the profit which is kept by the company or sometimes distributed to shareholders.

So now that we understand what constitutes profit, where does that leave all those insurance company profits?  When I started hearing all those comments, I went on Yahoo Finance to get the facts.  I looked at the top five insurance companies ranked by size at year end 2008 to see what their profits were.

In 2008, Unitedhealth Group kept 4% of their revenue.  The next two largest, Well Point and Aetna also had 4% profits.  The next two, Cigna and Humana had 2% profit.  Note that the total total profit for the top five companies was approximately $7.8 billion, but that number represents only an average of 4% industry profit. 

The top five insurers also paid $3.5 billion in taxes in 2008 or roughly half of their net profit.

Americans need to wake up and realize that they are being spoon feed misinformation to demonize groups of people and industries for political purposes.

Whenever you hear somebody in person or in the media talk about record profits, high profits, and windfall profits, you need to examine the true numbers to see if you are being mislead.  The surest way to take away freedom is to mislead people with false information.  Americans need to watch government closely and examine the facts since the media is unwilling to publish facts and prefers to stick to their own agendas.